SchifferLine 15 July 2014

Timely Real Estate News………………………………………………….15 July 2014

******************************************************************************************************************4th of July memoriesAs some of you know, for a number of years, I have owned a condo right on the beach in Coronado, a lovely island in San Diego. I just returned from spending the last 10 days there and it was heaven! Being a “navy” town, it is steeped in tradition and the celebrations and this year were no exception. It was a packed fun-filled day with a 10 K run, a old fashioned parade, BBQ’s on the beach and a concert in the park, and of course wonderful fireworks off of the bay! We were told that there were 200,000 in town that day!.. It sure felt like it.. I was shocked when I woke up and looked out at the beach at 7:00 am and was greeted with the sight of early beach lovers making “their reservations” for their spot on the beach.. I have never seen it like that before. Also, all week long there was a great deal of activity with the Seals on one side of the house training on the beach and in the water, and on the other the Navy jets and helicopters flying over the house…. we have not seen that much air activity in a few years. Makes you feel secure and vulnerable at the same time!

********************************************************************************************************************Real estate sales to foreign buyers and new immigrants surged to new highs in the last year In a study released last week by the National Assn. of Realtors (NAR), real estate sales to foreign buyers and new immigrants are pushing real estate sales to new highs. Overseas buyers and newcomers to the US accounted for $92 billion in home sales in the 12 months ending in March, NAR said. That’s up 35% from the prior 12-month period, and higher than the previous record of $82.5 billion set in 2012.

As I have been saying for the past several years, the influx of foreign buyers who have the cash and the desire/motive to purchase homes in our communities continues to run strong. They are buying in all areas of the Los Angeles area including the Westside, and they are well prepared and organized in their home shopping journeys. By dollar value, these buyers made up roughly 7% of all U.S. home sales, the increase was fueled by a 50% jump in activity from Chinese buyers, who bought $22 billion worth of US real estate last year.

Experts say many Chinese buyers see US real estate as a better investment opportunity than is often available in China and in some cases as a safe haven for cash. Many also buy homes here to put their children in US schools. Chinese buyers, in particular, have an eye for Southern California. Los Angeles and Irvine were two of their top three destinations, according to the survey, with San Francisco ranking second.

Chinese buyers have long been a factor in some parts of Southern California, particularly the San Gabriel Valley. As more come here, they’re spreading out to new areas as well. According to data tracking searches of Realtor.com., Los Angeles is the top choice for buyers of several other nationalities, as well. Buyers from India, the United Kingdom, Australia, Ireland and Russia were also most likely to search here. For buyers from Mexico, San Diego was the top choice.

The Realtors Assn. said it expects foreign interest in U.S. real estate will continue to grow as the economy grows ever more global. “We live in an international marketplace, so while all real estate is local, that does not mean that all property buyers are,” said NAR president Steve Brown. “Foreign buyers are being enticed to U.S. real estate because of what they recognize as attractive prices, economic stability and an incredible opportunity for investment in their future.”

*****************************************************************************************************************More More of the same, sort of….sales activity remains strongAmid continued signs that the housing marketing is “cooling off, we are seeing strong sales activity as sales for the first half of 2014 are running approximately 18% ahead of last year at this time, which has been highlighted by several large sales in the past several months. Sales through June 30, 2014, are at $1.583 billion vs. $1.325 billion for the five communities I report on — Beverly Hills, Beverly Hills Post Office, Bel-Air, Westwood/Century City, and Brentwood. Sales for these communities in 2013 (vs. 2012) were only 2% ahead of the previous year — not including Westwood/Century City. So what we are seeing is a steady upward trend in sales activity which is being driven by a demand from both foreign and domestic buyers for housing in our fine neighborhoods. (See above story)

We have had larger total sales in early 2014, but this was an anomaly because we had three large sales that skewed the monthly totals. From a trending point of view, we continue to trend upward but at a slower pace than at the first of the year — fueled by extraordinarily higher prices and large sales.

Median Sales Prices are strongIn comparing year-to-date median sales prices between the first half of the year in 2014 and 2013, Beverly Hills was up 14% over last year at $5.162 million; Beverly Hills Post Office is up 11% to $2.225 million; Bel-Air was up 36% year to date to $2.450 million; Westwood/Century City was up 27% to $1.660 million; and Brentwood was up 17% to $2.312 million. This is one of the first times in recent memory when all five areas have exceeded the previous years’ median sales prices. Usually, one or two are up (or down).

The median sales price measurement is the best way to view how each community’s pricing fares on a month-to-month basis as a large home sale doesn’t really factor into the that MSP as would be in average-price computation.

It’s not all about one or two large salesWhat is good to see in our latest mid-year #s is that we are getting back to a more normal market. This past June, we had only one large sale of $24 million in Bel-Air, with four homes over $3 million. In Beverly Hills, we had five homes over $3 million with the highest at $12.5 million. BHPO had two homes over $3 million with the highest at $7.6 million. Westwood/Century City had one home over $3 million at $3.5 million. And Brentwood had nine homes over $3 million with two over $10 million, and one at $24,000. So while we have seen several large estates selling for over $20 million in recent months, the market appears to be leveling out. As I have indicated many times in the past, our communities feature some of the world’s most spectacular properties (such as the recent Disney estate that sold for $74), we are accustomed to seeing these large sales. Each month can be a surprise…..expect more. They are bound to come.

Prices are moderated from a year ago…..In analyzing the MLS data that we get each month, I am reminded that home prices vary greatly from month to month. For example, three communities’ median sales prices were actually down compared to the previous year for the month of June 2013. For June 2014 Beverly Hills was down 13% compared to June 2013….BHPO was down 13%….and Bel-Air was down 8%. However, Westwood/Century City was up 15% compared to a year ago, and Brentwood was up 13%.

And when you compare the May-to-June 2014 MSP, all five communities were down with Beverly Hills down 55%, BHPO down 23%, Bel-Air down 23%, Westwood/Century City down 20%, and Brentwood down 13%.

What we are seeing is a “slowing down” of the aggressive #s we had in the first four months of 2014. Home prices across the nation are moderating, which hopefully will help many buyers who want to enter the market but can’t because of the high prices.

*******************************************************************************************************************The The Millennials are back! Kids do the darndest things….. If you’re a parent and have experienced your son or daughter (or their families) moving back home after graduating from college (and having a job), you can take some pleasure in knowing you’re not alone. “When will they leave?” is often the lament of parents who thought once they helped their children through college, “…it was over.” Well, welcome to the new reality.

As Bill Cosby said, “kids do the darndest things!” Even when fully employed, some kids never seem to leave. But times are changing, slowly, but they are changing.

According to a recent study by Harvard’s Joint Center for Housing Studies, kids do really want to leave, and by 2025 could form 24-million new households. Some 11 million recent grads were living with a parent in 2012, according to Pew Research. The home ownership rate for those under age 35 was 36% in the first three months of 2014, down from a high of 43% in 2005, according to the Census.

Three main factors have been holding them back, said the Harvard study: A weak job market for recent graduates, Student loan debt, and tight lending standards.

As the economy begins to turn around, the obstacles have begun to fall. “When the job market recovers and their income recovers, they are going make their mark on this housing market,” said Christopher Herbert, research director at the Harvard division, in a panel discussion following the release of the Harvard report.Buying by Millennials should give a boost to the housing market.

On the face of it, the ‘move-in with Mom & Dad” trend has always been with us…but the recent economic downturn has made an impact on “livability” issues — it’s cheaper to live at home, and besides your old bedroom may remain unoccupied. And actually, some parents love having their kid(s) around….keeps them young. To a point some say.

*********************************************************************************************************************Beware of all-cash buyers…. it doesn’t always turn out that wayHome sellers are always pleased to see “all cash buyers” make an offer — because it means the transaction will proceed seamlessly from offer acceptance to close of escrow. All cash seems to always trump mortgage loans. However — my experience lately has indicated that many all-cash offers start out that way, but along the way, a ‘change of heart’ occurs.

What we are seeing is that these “all cash offers” are really not what they appear to be even though buyer has the ability to pay all cash…has the proof they can go that route, but in the end, has no intent of following through with an all cash transaction. The reason? It’s a way to gain leverage in the buying process and turn away other competitive buyers. And what we are seeing today is that nearly 30% of all all-cash deals fall out of escrow. There are a lot of games being played in these very competitive markets and buyers will sometime use any device they can to tie up a property.

It’s best you have an experienced realtor (like myself) who is sensitive to these tactics — it’s not fair to the home seller or to the other buyers who get frozen out of the transaction.

*******************************************************************************************************************Interest rates may stay low for a long timeThere may be good news on mortgage front: According to several government reports on the economy, business and finance, there are many factors that have indicated that the low interest rates, which was the initial target of the Federal stimulus package in the first place, would remain in place for some time as noted in the Los Angeles Times article July 6, 2014.

Since the financial crash of 2008, one of the biggest guessing games in the US economy and markets has centered on interest rates — and when they would finally rise from the historic lows that followed the Great Recession. But year after year, analysts — who predicted a sustained rebound in rates — have been foiled in predicting their demise.

The report noted that the long stretch of rock-bottom rates has been great for many home buyers, corporate borrowers and stock markets. Now with the US economy showing increased resilience after a winter slump — the focus has again shifted to the question of when interest rates could begin to return to “normal” levels. Many economists and investment professionals believe that neither short-term nor long-term rates will go significantly higher, and then will stay there, for the next few years. More likely, they say, are modest increases that might even be quickly reversed.

The implications of another extended period of depressed rates would be huge for Americans’ investing and saving strategies. It could continue to support stocks’ bull market and home prices, for example. But pension funds, hoping for higher bond yields to fund promised retiree benefits, would be stymied. There would be more frustration for savers who now have nearly $10 trillion sitting in short-term bank accounts and money market mutual funds, earning almost nothing.

At the heart of the debate, of course, is the Federal Reserve. The nation’s central bank controls short-term rates and has held them near zero since the end of 2008 to support the financial system and economy. In a report that the Fed policymakers issued after their June meeting, if the economy continues to expand and unemployment continues to decline, they made clear that they expected to finally begin lifting their benchmark rate in 2015,

The revised GDP growth rate for Q1 to -2.9% was an anomaly according to some economists, and a continued lower-than expected GDP could affect longer-term interest rates if the expected recovery doesn’t happen, beginning with the 2nd quarter just completed.

Fed rate to stay at 2.5% or less by end of 2016…..Asked for their rate prediction for the end of 2016, the majority of the Fed panel expected 2.5% or less. Because the Fed’s rate influences all other interest costs, that would suggest still-low rates across the board. To put the 2.5% forecast in context, the Fed’s key rate was more than double that, at 5.25%, in September 2007, one year before the financial system meltdown. The Fed’s caution fits with a theme that has been heavily debated on Wall Street since 2008: the idea that the U.S. economy, badly scarred by the Great Recession, has become stuck in a slow-growth mode that could last many years.

Lawrence Summers, president emeritus of Harvard University and President Obama’s economic advisor in 2009-10, has warned of “secular stagnation” — the risk of the U.S. falling into a Japan-style funk marked by weak consumer spending, anemic economic growth, minimal inflation and low interest rates. Summers’ scenario is a more dire version of the “new normal” that investment giant Pimco in Newport Beach described beginning in 2009. The firm, led by bond guru Bill Gross, foresaw a long period of struggle for the debt-saddled global economy instead of the usual rapid post-recession rebound in growth. Pimco was mostly on target. The U.S. economy grew at an average annual rate of just 2.3% from 2010 through 2013, compared with an annual average of 3.7% from the 1950s through the 1990s.

Now, Pimco and Gross have coined a fresh term for what they see ahead: the “New Neutral” — a reference to the Fed interest rate level appropriate for the economy’s pace and the level of inflation. They see the Fed’s rate no higher than 2% through the end of the decade. “The New Neutral … suggests things are just gonna be this way for at least the next three to five years, and likely much more,” Gross says.

What’s more, the Fed’s counterparts, the European Central Bank and the Bank of Japan, have shown no signs of retreating from their own campaigns to keep interest rates depressed. Their benchmark short-term rates are even closer to zero than the Fed’s rate. The FCB said last week that it was ready to launch new programs to pump money into the struggling Euro zone economy, where the jobless rate is 11.6%, nearly double the U.S. rate of 6.1%. “The world has become addicted to low interest rates,” Minerd said.

But central banks directly control only short-term rates. Long-term rates, such as on bonds, are influenced by the banks but are set by investor demand — from giant pension funds to small savers hunting for steady income. Robust investor demand for bonds in part stems from the developed world’s aging populations, who are increasingly hungry for interest income and relative safety of principal, analysts say. The long-term drag on the global economy and on interest ratesfrom graying demographics is a favored theme of Jeffrey Gundlach, who oversees $50 billion at DoubleLine Capital in Los Angeles and who foresees a long period of subdued interest rates.

In the aftermath of the financial crisis, shell-shocked investors pumped an unprecedented net $1 trillion into U.S. bond mutual funds from 2009 through 2012, while they were net sellers of stock funds, according to the Investment Company Institute. In 2013, bond funds saw a net outflow of $80 billion as some investors cashed out.

Despite the potential economic and demographic downward pressure on interest rates in the next few years, those forces could easily be overridden by another: inflation. If prices for goods and services were to rise sharply and stay elevated, bond investors could quickly drive longer-term interest rates up dramatically. They would have to, or they’d risk locking in interest returns that would be badly eroded by inflation. Since 2009, investors have had little to fear from inflation, which has remained mostly below a 2% annual rate by any of several key gauges.

All of the above adds up to a strong wait and see situation.. It will prove to be interesting for us to observe!

*******************************************************************************************************************Official Second Half of the Year!

Now that we are in the second half of what has been a most interesting year, I am very much looking forward to seeing how it presents itself. I have just found out that one of the stalwarts of the shopping center Brentwood Gardens, The Daily Grill has closed its doors. That is very sad as they were one of the first restaurants when the concept of a” restaurant row” in Brentwood began about 24 years ago. In the mean time I am continuing my quest to find homes for my every growing list of buyers. If you are considering selling your home, please let me know, inventory continues to be at an all time low and buyers are out there looking to buy and that is what keeps the wheels going round.